Friday, 5 August 2016

Why I buy Straco Corporation?

I first came across Straco from Motley Fool Singapore subscription service. As mentioned in my detailed analysis of the company, I wish I have gotten to know this company earlier.

Why buy?
The following are the key reasons why I purchased Straco.

  • The group has been able generate cash consistently. This leads to its ability to pare down its debt and to increase its dividend over the years.
  • The acquisition of Singapore Flyer marked its foray beyond China. I believe this would lead to other acquisitions when opportunities arise.
  • The ability of the group turning over the fortune of Singapore Flyer within one year of acquisition gives me confident that the management team knows what they are doing.

What I expect?
Base on the past actions, I expect the management to use its cash to repay its debt in the next few years and hence dividend should remain the same. After which, it would increase its dividend unless there are new attractions to acquire. I also think that the management will improve Singapore Flyer's business further within the next 2 to 3 years.

When will I sell?
I am confident that the company will continue to grow and hence look to hold on to the shares for a long time. I will sell if the competition in Shanghai significantly affects SOA's top and bottom lines. 

Recent results
20161H saw Straco's revenue decreased marginally by 0.5% from 20151H. Its net profit dropped by 8.2%. Management attributed the drop to poorer number at SOA and UWX but offset by increase in revenue at SF. Net cash flow from operation also decreases by about the same amount. 

I have a slight concern of company's performance at SOA and UWS. I am not sure if the numbers will continue to deteriorate and will continue to monitor the coming quarters results. I have decided to reduce to my holdings in the company even though I think it's still a good company to collect dividend due to its ability to generate cash. I will also re-classified the company in the dividend category rather than growth category in my portfolio.

Wednesday, 3 August 2016

Why I buy Parkway Life Reit?

I first came across Parkway Life Reit from Motley Fool Singapore subscription service. It is interesting that this healthcare Reit was not in my radar for the past decade. It could be that I was holding on to First Reit through CPF in the past decade and hence it did not occur to me to look for other healthcare Reit. And because of that, I missed its growth over the past decade! Ouch!

Why buy?
I believe it is still not too late to take a stake in this stable and probably growing Reit. A few reasons behind my optimism.

  • Population in affluent Singapore and Japan will continue to age and hence there will continue be demand for quality healthcare and nursing homes.
  • The built-in rental escalation for the three Singapore hospitals (Mount Elizabeth, Gleneagles, and Parkway East) which is based on the formula of consumer price index (CPI) + 1 allows annual growth rent.
  • Past performance indicated a strong management team which has ensure no more than 30% of its debt matures every year.
What I expect?

What do I expect for the next decade? I expect to receive consistent dividend from the Reit and based on my purchase price, it's about 5.2% yield. Growth should be moderated since it does not have much headroom for debt (though management felt that there is ample headroom) with its gearing around 38%. I think these are two possible events in the next decade, 1) Rights issue to raise money for new acquisition; 2) occasional divestment which will result in special dividend.

When will I sell?

I do hope to keep this forever unless there's a big deterioration in its fundamental such as a big drop in its revenue, net property income etc.

Recent results
In the results released in July, Parkway Life Reit continues to perform well. For 1H 2016, its revenue has grown 7.7% to $54.286 million and net property income grew 7.5% to $50.7 million. Its dividend per unit dropped by 8.6% to 6 cents due to lack of divestment gain. Exclude the divestment gain, current dividend represented 51% of 2015 full year dividend. From the presentation slides, management highlighted two prong approach in its Strategic Investment.

  • To continue to seek out long-term and strategic partnership with good lessee/operator where possible. 
  • To prioritise & seek out investment opportunities in countries where PLife REIT  already has investments. It might establish a country HQ for closer monitoring of its properties and portfolio.
All seems well and I will continue to hold on to my small stake.